REFORMING INSURANCE LAW: - Law Commission
REFORMING INSURANCE LAW: - Law Commission
REFORMING INSURANCE LAW: - Law Commission
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which could be applied consistently by the courts. It deliberated on whether the objective test in s<br />
21(1)(b) imposed too high a burden on the assured and whether the original view of the ALRC<br />
opting for a substantially subjective test would be preferable. Its conclusion was that s 21(1)(b)<br />
imposed an undue burden on consumer assureds but that the law worked satisfactorily in the<br />
context of commercial insurance. Its recommendation 75 was that the test should remain the same<br />
but that it should be applied by reference to considerations such as the nature and extent of the<br />
cover provided by the contract of insurance, the class of persons who would ordinarily be<br />
expected to apply for cover of that type and the circumstances in which the contract of insurance<br />
is entered into including the nature and extent of any questions asked by the insurer. The<br />
Treasury agreed with this conclusion and the proposed new version of s 21(1)(b), set out in the<br />
Insurance Contracts Amendments Bill 2007 lays down a non-exhaustive list of factors to which<br />
the court is to have regard when determining whether a reasonable person in the circumstances<br />
could be expected to know a matter was relevant to the decision of the insurer whether to enter<br />
the contract of insurance. The revised s 21(1) would require the assured to disclose every matter<br />
known to him, being a matter:<br />
(a) the insured knows to be a matter relevant to the decision of the insurer whether to<br />
accept the risk and, if so, on what terms, or<br />
(b) a reasonable person in the circumstances could be expected to know to be a<br />
matter so relevant, having regard to factors including, but not limited to:<br />
(i) the nature and extent of the insurance cover to be provided under the<br />
relevant contract of insurance; and<br />
(ii) the class of persons for whom that kind of insurance cover is provided in<br />
the ordinary course of the insurer’s business; and<br />
(iii) the circumstances in which the relevant contract of insurance is entered<br />
into, including the nature and extent of any questions asked by the insurer.<br />
In accepting the recommendations of Treasury Review II, the Treasury specifically rejected the<br />
alternative possibility that the duty of disclosure should be abolished entirely: the evidence was<br />
that the duty remained important in the commercial insurance and life markets. As far as UK<br />
reform is concerned, clarification on which test is to be adopted would be necessary.<br />
4.9 The ALRC’s recommendations in its 1991 report on marine insurance are at variance with<br />
this approach. The ALRC was persuaded that the 1984 Act was primarily aimed at consumers 76<br />
and has suggested that in the commercial context of marine insurance the “prudent insurer” test<br />
should be retained over the prudent assured test. Accordingly, under its recommendations, a fact<br />
has to be disclosed by the assured only if he knew or ought to have known that it was material,<br />
that term being defined as it is presently, namely “Every circumstance is material which would<br />
influence the judgment of a prudent insurer in fixing the premium, or determining whether it will<br />
take the risk.” It may here be pointed out that the prudent assured test is self-policing, in that a<br />
know of the relevance of the fact?” Cf Delphin v Lumley General Insurance Ltd (1989) 5 ANZ Insurance Cases 60-<br />
941. The point was left open in GIO General Limited v Wallace [2001] NSWCA 299.<br />
75 Recommendation 4.1.<br />
76 It has to be said that this does not appear from the 1984 Act itself, although the Regulations made under it do, for<br />
specific purposes, treat certain forms of policy which are primarily non-commercial differently.<br />
19